TMI Blog2019 (1) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... llowances. - Decided in favour of assessee. - ITA No. 280/Ind/2014 And ITA No.692/Ind/2013 - - - Dated:- 3-1-2019 - SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER For The Assessee : Shri Sumit Nema, Sr. Adv. with Shri Gagan Tiwari, Adv. For The Revenue : Shri R.P. Maurya, Sr. DR ORDER PER SHRI KUL BHARAT, JM Vide common consolidated order dated 19.7.2018, three appeals bearing ITA No.454/Ind/2012 (A.Y. 2007-08), ITA No.280/Ind/2014 (A.Y. 2009-10) ITA No.692/Ind/2013 (A.Y. 2010-11) in case of present assessee were decided. From the perusal of order, we observed that grounds and findings thereof in ITA No.280/Ind/2014 (A.Y. 2009-10) ITA No.692/Ind/2013 (A.Y. 2010-11) required re-adjudication as some grounds inadvertently left adjudication. We, therefore, issued Corrigendum dated 10.10.2018 directing that both the above appeals i.e. ITA No.280/Ind/2014 (A.Y. 2009-10) ITA No.692/Ind/2013 (A.Y. 2010-11) be re-fixed for hearing on 06.11.2018. Accordingly, we heard both the parties on 06.11.2018. ITA No.280/Ind/2014 (A.Y. 2009-10) 2. The assessee has raised following grounds of appeal: 1. That on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case and in law, the levy of interest u/s. 220(2) at ₹ 60080/- is unlawful and the said levy be kindly cancelled. 3. Ground Nos.1 to 5 relate to confirmation of disallowance of the assessee s claim by the Assessing Officer for deduction u/s 11 holding that the assessee s activities were not for charitable purposes within the meaning of Section 2(15) of the I.T. Act. 4. Facts, in brief, as narrated in the impugned order, are that the assessee is a society registered on 01.10.1983 under Societies Registration Act. The assessee furnished its return of income on 29.9.2009 declaring nil income after claiming the benefit of Section 11 of the I.T. Act. The assessee was registered u/s 12A w.e.f. 29.1.1986. The Assessing Officer noticed the assessee is engaged in activities of publication of newspaper known as Rozgar Aur Nirman , production of documentary films, TV reports etc. for the State Govt. and Public Sector undertakings and also acting as an advertising agency for various state govt. departments and PSUs. The objectives of the assessee are as under: 1. Publication of weekly newspaper under the name of Rozgar Aur Nirnam . 2. Complementary publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,05,45,492.00 2005-06 1,01,42,024.52 In view of the above facts, the Assessing Officer held that the nature of activities carried out by the assessee can at best be termed as commercial in nature. Therefore, the Assessing Officer held that the assessee was not covered in the definition of charitable purpose within the meaning of Section 2(15) of the I.T. Act and, therefore, the assessee was not eligible for deduction u/s 11 of the I.T. Act. Accordingly, the Assessing Officer assessed the excess of income over expenditure of ₹ 1,26,93,882/- as business income. Aggrieved with the action of the assessee, the assessee preferred an appeal before this Tribunal. 5. The ld. CIT(A), after discussing the submissions and material on record, confirmed the action of the Assessing Officer. The relevant findings of the order of the ld. CIT(A) are reproduced hereunder: In the light of the above discussion, if the provisions of Section 2(15) as amended by the Finance Act, 2008 and ratio of various decisions are applied to the facts of the appellant society, it will be clear that the activities carried out by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nature of trade, commerce or business. The appellant was also engaged in the activities of rendering services in relation to trade, commerce, or business for fee, as the appellant had charged 15% commission/service charges for the services rendered by it on the total amount of bill for printing, hoardings, advertisement, films, other projects etc. undertaken by the appellant for state government departments and public undertakings. Thus, from the activities of the assessee society, it is evidently clear that the provisions of the first proviso to Section 2(15) are applicable in this case and, hence, the activity of the appellant society cannot be said to be for charitable purposes within the meaning of amended Section of 2(15) of the Act. Here it would be relevant to reproduce the provisions of Section 13(8) of the Act, which reads as under: ( 8) Nothing contained in Section 11 or Section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of Section 2 become applicable in the case of such person in the said previous year. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find its way into the pockets of any individuals or entities. It is to be utilized fully for the purposes of the objects of the assessee and in deciding whether any activity is in the nature of trade, commerce or business, it has to be examined whether there is an element of profit making or not. The proviso to section 2(15) does not make any distinction between entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business on the one hand and genuine charitable organizations on the other. The expression 'charitable purpose' should be construed not in a vacuum, but in the specific context of dominant object. Section 10 deals with the incomes not included in total income and section 10(23C)(iv) specifically deals with the income received by any person on behalf of, inter alia , an institution established for charitable purposes. Therefore, the meaning of the expression 'charitable purposes' has to be examined in the context of section 10(23C)(iv). The only thing that is to be examined is whether the petitioner had been established for charitable purposes? The fact that it derives income does not, in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words, in this Act, unless the context otherwise requires . The expression charitable purpose appearing in Section 2(15) of the said Act has to be seen in the context of Section 10(23C)(iv). When the expression charitable purpose , as defined in Section 2(15) of the said Act, is read in the context of Section 10(23C)(iv) of the said Act, we would have to give up the strict and literal interpretation sought to be given to the expression charitable purpose by the revenue. With respect, we do not agree with the views of the Kerala and Andhra Pradesh High Courts. 55 . It would be appropriate to also examine the observations of another Division Bench of this court in G.S.1's case (supra). While considering Circular No.11 of 2008 issued by the CBDT, to which a reference has been made earlier in this judgment, the Division Bench held that it was evident from the said circular that the new proviso to Section 2(15) of the said Act was applicable to assesses, who are engaged in commercial activities, i.e., carrying on business, trade or commerce, in the garb of 'public utilities' to avoid tax liability as it was noticed that the object 'general public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self-gain should be missing and the predominant purpose of the activity should be to serve and benefit others. A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence. Quantum of fee charged, economic status of the beneficiaries who pay, commercial value of benefits in comparison to the fee, purpose and object behind the fee etc. are several factors which will decide the seminal question, is it business? 57 . Ultimately, in the context of the factual matrix of that case, this court held that charging a nominal fee to use the coding system and to avail the advantages and benefits therein is neither reflective of the business aptitude nor indicative of the profit oriented intent . The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to self-sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self- gain should be missing and the predominant purpose of the activity should be to serve and benefit others. A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence. Quantum of fee charged, economic status of the beneficiaries who pay, commercial value of benefits in comparison to the fee, purpose and object behind the fee etc. are several factors which will decide the seminal question, is it business? 23. The petitioner charges an initial registration fee of ₹ 20,000/- plus annual fee of ₹ 4,000/-, enhanced to ₹ 5,000/- from financial year 2006-07 onwards from third parties, who become subscribing members and are entitled to use the coding system, GS1. Revenue acknowledges that the petitioner enjoys monopoly and has exclusive rights to issue global bar coding system GS1 in India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner carries on charitable activity under the residuary head -general public utility- but simultaneously regards the said activity as business. Thus the contention of the Revenue that the petitioner charges fee and, therefore, is carrying on business, has to be rejected. The intention behind the entire activity is philanthropic and not to recoup or reimburse in monetary terms what is given to the beneficiaries. Element of give and take is missing, but decisive element of bequeathing is present. In the absence of -profit motive- and charity being the primary and sole purpose behind the activities of the petitioner is perspicuously discernible and perceptible. 26. Table relied on by the respondent and mentioned in paragraph 7 above tells a partial story. Only direct expenses incurred have been set off from the fee earned from registration and renewal. The activity of the petitioner involves promotion, propagation and spreading awareness and knowledge about global coding identification system GS1. The entire expenditure of the petitioner has to be taken into consideration and cannot be ignored. There are stipulations in Sections 11, 13 etc. of the Act to prevent misuse o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r five years may and should be taken into consideration. It was held as under: -It cannot be gainsaid that the municipal general tax is an annual tax. Therefore, normally speaking, the liability for taxation must be determined with reference to each year. In other words, the society claiming exemption will have to show that it fulfils the conditions for exemption each year. If it shows, for example, that for its support it has to depend on, either wholly or in part, voluntary contributions, in that particular year, it may be exempt. But where in that year, for its support, it need not depend on voluntary contributions at all or again if the society produces surplus income and excludes the dependence on voluntary contributions, it may cease to be exempt. Of course, the word -support- will have to mean sustenance or maintenance. Only to get over this difficulty that the qualitative test is pressed into service. We would consider the reasonable way of giving effect to the exemption, will be to take each case and assess for a period of five years and find out whether the society or body depends on voluntary contributions. Of course, at the end of each five-year period the assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , thus a single set of books of account is maintained, as what is treated and regarded by the Revenue as the !business' is nothing but intrinsically connected with acts for attainment of the objects and goals of the petitioner. We fail to understand when the petitioner is maintaining the books of accounts with regard to their receipts/income as well as the expenses incurred for their entire activity then how it can be held that separate books of accounts have not been maintained for !business' activities. The -business- activities are intrinsically woven into and part of the charitable activity undertaken. The -business- activity is not feeding charitable activities. In any case, when we hold that the petitioner is not carrying on any business, trade or commerce, question of requirement of separate books of accounts for the business, trade or commerce is redundant. Other aspects 31. There is another challenge to the registration, which has neither been adverted to in the impugned order nor raised by the respondent during arguments. First proviso to Section 2(15) of the Act equally bars rendering of any service in relation to any trade, commerce or business when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of the respondent, if accepted, would deny charitable status to a faintly moderate size institution under the last/residuary limb, when it charges even a token or insignificant amount from the beneficiaries, who gain significantly from the altruism and benevolence. A small charitable organization that receives token fee of more than ₹ 80,000/- a month or now ₹ 2,00,000/- per month approximately, would disqualify and lose their charitable status. The object of the proviso is to draw a distinction between charitable institutions covered by last limb which conduct business or otherwise business activities are undertaken by them to feed charity. The proviso applies when business was/is conducted and the quantum of receipts exceeds the specified sum. The proviso does not seek to disqualify charitable organization covered by the last limb, when a token fee is collected from the beneficiaries in the course of activity which is not a business but clearly charity for which they are established and they undertake. 33. On the basis of reasoning given in the impugned order, we do not think that the petitioner can be denied benefit of registration/notification under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities. It is to be utilized fully for the purposes of the objects of the assessee. Further, the expression 'charitable purpose' should be construed not in a vacuum, but in the specific context of section 10(23C)(iv), which specifically deals with the income received by any person on behalf of, inter alia , an institution established for charitable purposes. Therefore, the meaning of the expression 'charitable purposes' has to be examined in the context of section 10(23C)(iv). We are of the view that since the object of promoting employments/educational institutions/govt. schemes for the general public is a charitable purpose, the expression 'charitable purpose', as defined in section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of section 10(23C)(iv) as also held in the above judicial pronouncements. On consideration of these facts in the light of the aforesaid judgments, we are of the view that the authorities below are not justified in disallowing the entire exemption. We, therefore, direct the Assessing Officer to delete the disallowances. Thus, ground nos. 1 to 5 are allowed. 10. Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to in subsection (12) of section 144BA]]] or section 150; [( ba) an order of assessment or reassessment under section 153A 87[[except an order passed in pursuance of directions of the Dispute Resolution Panel]] 88[***] 89[or an order referred to in subsection (12) of section 144BA];] [( bb) an order of assessment or reassessment under sub-section (3) of section 92CD;] ( c) an order made under section 154 or section 155 having the effect of enhancing the assessment or reducing a refund or an order refusing to allow the claim made by the assessee under either of the said sections 91[***] 92[except an order referred to in sub-section (12) of section 144BA]; In view of the above provision, we are in agreement with the finding of the Ld. CIT(A) that order u/s 220(2) is not appealable before the Ld. CIT(A). This ground of the assessee s appeal is dismissed. 14. In result, the appeal of the assessee is partly allowed. 15. Now we take up the assessee s appeal in ITA No.692/Ind/2013 for A.Y. 2010-11. The assessee has raised following grounds of appeal: 1. That on the facts in the circumstances of the case and in law, The Ld. CIT(A)/AO erred and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d No.5 with regard to TDS is same as in ITANo.280/Ind/2014. Both the representatives of the parties have adopted the same arguments. We have decided the similar issue as under: Apropos ground No.6, the Ld. counsel for the assessee submitted that Ld. CIT(A) has not adjudicated this ground, therefore, we deem it proper that the issue be restored to the AO to verify the claim of the assessee in respect of credit of TDS. In case the TDS has been deducted and paid in accordance with law the AO would grant the credit. This ground of the assessee s appeal is allowed for statistical purposes. 18. For the same reasoning, this ground of the assessee s appeal is allowed for statistical purposes only. 19. Ground No.6 with regard to charging of interest u/s 234D is consequential in nature and, therefore, same does not need any separate adjudication. 20. In the result, both the appeals of the assessee i.e. ITANo.280/Ind/2014 ITANo.692/Ind/2013 are partly allowed. The contents of our earlier order dated 19.7.2018 relating to other appeal would form part and parcel of this order as well. The contents are not repeated herein to avoid repetition and for the sake of brevity. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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